Underlying operating profit rose 6.2% to £944mn, as margins rose to a record 8.0% off the back of acquisitions and increased sales of own-brand products.
There were 19 acquisitions in 2023, with a committed spend of £468mn. Alongside results, two more acquisitions were announced, the largest being an 80% stake in Nisbets for £339mn.
Free cash flow fell 8.8% to £644mn. Net debt including lease liabilities was broadly flat at £1.75bn. A final dividend of 50.1p was announced, up 10.4%.
Despite a slower start in North America, guidance for 2024 remains. Revenue is expected to post a small gain driven by acquisitions and operating margin is expected to be slightly lower.
The shares fell 4.9% in early trading.
Our view
A decent set of full-year results were slightly hindered by commentary that trading in the early parts of the new year has been worse than expected. But we were pleased to see full-year guidance remains intact despite this.
Bunzl's a mashup of around 150 distribution businesses, which source and deliver a range of essential products. There's nothing fancy about the products on offer, think food packaging and safety equipment. But that's what we like about the product range, these are things customers can't go without. Overall, we retain the view that Bunzl's an attractive business, but there are some things to monitor.
Recent organic performance has been a struggle. Falling inflation is pulling sales down and normalising sales from Covid related products across geographies are a drag. The latter should normalise as we move through 2024 and comparable periods ease, but it’s pricing where see headwinds persisting.
Aside from organic growth, it's acquisitions that take centre stage. Over the past 20 years, they’ve accounted for around two-thirds of the impressive 9% compounded annualised growth rate in revenue. It’s a highly fragmented market so there’s plenty of opportunity to snap up businesses with attractive margins at decent prices.
The Nisbet deal (a distributor of catering equipment and consumables) was bigger than we’re used to seeing. At £339mn on its own, that’s already 72% of the total spend on 19 acquisitions in 2023. Initial details point to a slight premium paid compared to the usual sweet spot, but it’s expected to be a meaningful benefit to earnings in its first full year post-completion.
Acquisition-led strategies have their drawbacks. If the pool of target companies dries up or a business needs to raise external cash to fund acquisitions, then it's not usually sustainable. Bunzl's got this covered with a highly cash generative business model, and a strong balance sheet with plenty of room to tap debt markets if needed.
We've been genuinely impressed by Bunzl's margin performance, and remain supportive of the resilient portfolio and highly cash-generative model. In the short term, we're mindful that organic weakness puts a lot of pressure on acquisitions to do the hard work. Expect to see some further top line declines before things stabilise.
Bunzl key facts
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